When it comes to fast food, people tend not to question what they’re eating, choosing instead to go for taste and affordability. But all it takes is for one person to reveal your food’s real ingredients, and you’re suddenly in the middle of a fast food controversy.
For fast-casual restaurant Chipotle Mexican Grill, Inc. (NYSE:CMG), the person who revealed the truth was the restaurant chain itself. The company chose to label items on its menu that contained Genetically Modified Organisms (GMOs), leading investors to worry the news might have an impact on its stock. But the revelation appeared to have no immediate impact on the stock, which has enjoyed a seven percent increase in earnings in the past year.
Honesty is the best policy
Chipotle Mexican Grill, Inc. (NYSE:CMG) was wise to fully disclose the GMOs on their items, coming on the heels of consumer demand. With GMOs, vegetables are genetically altered, often to prevent damage from pests. Because of uncertainty about the impact of GMOs on those who ingest them, nutrition-savvy consumers are understandably interested in learning as much as possible about its presence in various foods.
Taco Bell, on the other hand, found itself in the heat of controversy in 2011 when an Alabama law firm sued the company over its claims that each of its products was made with seasoned beef. The fast food chain’s parent company, Yum! Brands, Inc. (NYSE:YUM), was in the process of an expansion overseas, so the bad publicity reached new markets.
Be proactive
Perhaps the biggest lesson Yum! Brands, Inc. (NYSE:YUM) could learn from Chipotle Mexican Grill, Inc. (NYSE:CMG) is to be proactive in disclosing information that might impact its brand. In the wake of the controversy, Taco Bell issued a statement that its meat was 88-percent beef, rather than the 36 percent alleged in the lawsuit. The company fully disclosed its recipe, stating that the other 12 percent is made up of water, spices, and ingredients like oats, starch, and yeast.
However, it was a little too late for the company. Profits dropped 13 percent in the U.S., where sales account for 60 percent of its bottom line.
Another shining example
Natural food grocer Whole Foods Market, Inc. (NASDAQ:WFM) is another company that embraces the full-disclosure idea. When consumers became concerned about pink slime in meat products, the grocery store chain announced that it had already demanded its suppliers disclose and discontinue any products containing pink slime.
And now, in 2013, Whole Foods Market, Inc. (NASDAQ:WFM) once again is making news for being proactive. The company came forward to address customers’ concerns about GMOs, even creating a FAQ page on its website about the chemicals.
In fact, it’s Whole Foods Market, Inc. (NASDAQ:WFM)’ commitment to customers’ health and well-being that may be a credit for its recent success. The company recently reported same-store sales are up 6.9 percent, with net income in its most recent quarter increasing to $142 million. The company is the largest natural and organic food chain, which is significant, as American’s become more focused on healthy eating.
Foolish bottom line
Consumers are quickly learning that GMOs are in products consumers buy and eat every day. Since the chemicals aren’t regulated, companies like Whole Foods and Chipotle Mexican Grill, Inc. (NYSE:CMG) are jumping ahead of the crowd by disclosing its items that contain the chemical. By doing that, both companies support their customers choice to avoid the chemicals.
Perhaps both companies saw the Taco Bell controversy and realized that the best way to head off problems is to be honest. Since GMOs are a growing concern for consumers, providing a way for customers to avoid them is perhaps the best move food providers can make.
The article What Taco Bell Can Learn from Chipotle originally appeared on Fool.com and is written by Stephanie Faris.
Stephanie Faris has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill (NYSE:CMG) and Whole Foods Market (NASDAQ:WFM). The Motley Fool owns shares of Chipotle Mexican Grill and Whole Foods Market. Stephanie is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited
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